Game console price war ahead, analyst predicts

Shoppers check out the console offerings at a Toys R Us store in New York.

Shoppers check out the console offerings at a Toys R Us store in New York. (Daniel Acker)

Alex Pham

Gamers could become winners in a price war this holiday as console manufacturers slug it out for scarce consumer dollars, according to a report released this week.

With Nintendo due to release its next-generation Wii U game console on Nov. 18 at prices starting at $299.99, rivals Sony and Microsoft are under pressure to make their current-generation consoles more appealing to consumers who don't already have one.

McNealy, in a report entitled "The Business Model Impact of Video Game Hardware Launch Pricing and Price Cuts," predicted that Sony Corp. will lower the price of its PlayStation 3 console, priced at $249.99, by about $50 this holiday. He also expects that Nintendo will trim the suggested price of the Wii from $150 to $129, or even $99.

Microsoft will likely refrain from cutting the price of its $200 Xbox 360, McNealy wrote, but will offer specials on consoles that are bundled with games or peripherals, such as the Kinect motion-sensing controller.

Why race to the bottom on pricing, especially if it means taking a hit on hardware profits?

"It's a classic razor and razor blade business model," McNealy wrote, "where the company loses money on the razor, but makes it up selling razor blades."